October 22, 2024 (Globalinvestorideas.com Newswire) Globalinvestorideas.com, a go-to platform for big investing ideas releases market commentary from Rania Gule, Senior Market Analyst at XS.com
Gold prices have seen a significant rise in recent weeks, reaching $2,740 per ounce today, Tuesday – a new record high. In my view, this 30% increase since the beginning of the year represents one of the strongest annual gains in gold over the past 45 years. What’s remarkable is that this rise has occurred despite conditions that typically work against gold, such as the U.S. dollar strengthening by 3% and the declining expectations for interest rate cuts by the Federal Reserve.
However, the current economic and geopolitical conditions have played a major role in supporting this upward trend. Tensions in the Middle East have added uncertainty for investors, which has enhanced gold’s appeal as a haven. Additionally, the looming U.S. presidential elections are increasing doubts, pushing traders to seek safer assets-gold, of course, being one of the most prominent.
Considering these factors, the traditional drivers that influence gold prices, such as the U.S. dollar and interest rates, no longer explain the significant rise. Instead, geopolitical tensions and the U.S. elections may be more critical factors during this period. In this context, it’s worth noting that gold exchange-traded funds (ETFs) have seen consistent inflows throughout the last week, reinforcing the belief that investors are viewing gold as a hedge against rising risks.
In my opinion, despite this strong upward momentum, the possibility of a price correction should not be overlooked. Gold prices have reached levels that may appear overstretched, and the Relative Strength Index (RSI) indicates that the market has entered overbought territory. This indicator often signals a potential downturn or price correction shortly, especially as U.S. Treasury yields continue to rise, which could affect gold’s appeal compared to other assets.
This brings us to the key question: will this upward trend continue under current conditions, or are we on the verge of a potential correction? In reality, I believe the current geopolitical and economic environment makes it difficult to provide a definitive forecast. While Middle East tensions and the U.S. elections are pushing investors toward gold, central bank monetary policies could play a crucial role in determining the future price trajectory.
For example, the slight decline in the U.S. dollar could provide additional support for gold prices, especially if expectations for interest rate cuts persist. However, rising forecasts that the Federal Reserve may not cut rates significantly in the near term could limit any substantial drop in the dollar, potentially leading to a slight pullback in gold prices. Additionally, rising Treasury yields could have a short-term impact on gold.
But what about the long-term trends? In my view, gold is likely to continue rising over the long term, especially if geopolitical tensions persist and global economic crises remain unresolved. Gold has always been seen as a haven during times of crisis, and this has not changed. With escalating political and economic risks, we can expect continued capital flows toward this valuable asset.
On the other hand, we should also consider the likelihood of a potentially deep price correction. When prices reach new record highs, a phase of natural correction usually follows. Thus, predictions point to the possibility of a temporary drop in prices before the upward trend resumes.
In conclusion, gold remains one of the most attractive assets given the current circumstances. Geopolitical tensions and the U.S. elections provide a strong backdrop for supporting prices in the near term, but the possibility of an imminent price correction cannot be ignored, considering the record highs. With continued investment inflows and global economic volatility, it seems that gold will remain in the spotlight as a haven during these turbulent times.
Technical Analysis of Gold (XAUUSD) Prices:
From a technical perspective, the recent upward movement we’ve witnessed over the past two weeks or so has followed along an ascending channel. This suggests a strong short-term bullish trend and supports the likelihood of a move towards challenging the channel’s resistance, which is currently situated near the $2,750 region. However, the Relative Strength Index (RSI) on both the daily and four-hour charts shows slightly overbought conditions, warranting some caution. Therefore, it would be prudent to wait for some consolidation and sideways trading in the near term or a modest pullback before the next wave of upward momentum begins.
Gold – XAUUSD – MT4 Prices Chart – XS.com
Additionally, any corrective decline now seems to find some support near the $2,720 area. This is followed by the lower boundary of the aforementioned ascending channel, which currently lies around the $2,710 area. A decisive break below this level could pave the way for deeper losses, possibly driving gold prices below $2,700 towards the support at $2,685. The latter should act as a key pivot point, as a drop below it could accelerate the slide toward the former resistance break points at $2,662 and $2,661, which have now turned into support.
In the near term, gold continues its steady upward trajectory across all time frames (short, medium, and long term). After breaking above the $2,700 level, it is now on its way to the next target of $2,750. However, with the Relative Strength Index (RSI) in overbought territory, investors are advised against adding more positions due to the increased risk of a pullback. If the RSI closes in a neutral zone, it would signal investors to close their positions and consider opening sell positions as a deeper correction could develop. Support levels are located at $2,700 (key level) and $2,685 (September’s peak).
Despite the current RSI warnings, the strong overall upward momentum in gold suggests that any corrections are likely to be short-term, after which the primary bullish trend is expected to resume.
Support Levels: 2720 – 2710 – 2700
Resistance Levels: 2738 – 2747 – 2800
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